Moody's downgrades Abengoa Yield amid sponsor trouble

Moody's Investors Service last week downgraded the ratings of Abengoa Yield plc (NASDAQ:ABY), with the outlook remaining negative, due to the financial challenges at the yieldco's sponsor.

Abengoa Yield's Corporate Family Rating (CFR) has been decreased to B1 from Ba3, the Probability of Default Rating to B1-PD from Ba3-PD, its senior unsecured rating to B2 from B1, and the speculative grade liquidity rating to SGL-4 from SGL-3.

In its research report on Thursday, Moody’s analyst Natividad Martel discussed the potential contagion risk for ABY coming from the situation at Abengoa SA (BME:ABG), the yieldco’s sponsor and 47.1% owner. The Spanish company initiated pre-insolvency proceedings in November.

“[..] ABY is not completely immune from being affected from a liquidity and credit quality perspective. Specifically, a subsequent Abengoa debt restructuring would be an event of default in the debt financings currently at five of ABY's assets. If unremedied, this could prevent project level distributions from being paid to ABY and in the extreme and unlikely case, could lead to an acceleration of those project's indebtedness,” said Martel.

Abengoa Yield’s plan is to try to deal with the cross-default clauses for the five affected projects, including the 280-MW Mojave and the 280-MW Solana concentrating solar power (CSP) parks in the USA. Martel noted that there is a possibility that lenders may not waive their rights under the credit agreements.

Dividends from Solana and Mojave account for about 26% of ABY's USD 287 million (EUR 262m) of anticipated cash flows available for distribution (CAFD) in 2016.

Choose your newsletter by Renewables Now. Join for free!